Companies with multi-state or national operations face unique challenges in selecting workers’ comp attorneys to represent them in legal environments that can vary greatly from state to state, and sometimes even within a state.

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Often, insurers or TPAs will provide panels of workers’ comp attorneys in each state. Under some policies, the choice of attorney is up to the insurer. But for those choosing their own attorneys, finding the right workers’ comp law firms and managing those relationships can be a challenge.

Some choose to bundle workers’ comp with other legal representation, but just because a firm excels in another area, doesn’t mean they will in workers’ comp.

“Workers’ comp attorneys aren’t allowed to say they are specialists, yet they are expected to be,” said Mike Fish, partner at Fish Nelson & Holden and president of the National Workers’ Compensation Defense Network, a national network of workers’ compensation defense firms.

Others rely solely on personal referrals.

“I get those calls all the time. Current clients will ask who I know and trust in another state.” said Fish.

“That’s one of the benefits of NWCDN. We have contacts in each state. I know each of them and see them once or twice a year. They are heavily vetted, there is one per state, and they have to be voted in by the other members.”

“You are going to ask peers, people you respect, people you know in the business, people you know in the community,” said Debra Levy, SVP, product management and national workers’ comp practice leader for York Risk Services Group.

“You’re going to start there and there’s certainly nothing wrong with that.”

But referrals should only be a starting point.

“You’ve got to interview firms,” said Levy, to make sure your legal philosophies are aligned, and to ask about their operations and priorities, and specifics like using associates instead of partners on depositions. “… There are all those things that usually don’t come up until there’s a problem, and then folks are like …’Why didn’t we know that about this?’ ”

Fish recommends other research, as well.

“How involved they are with national or state-wide organizations. Are they prolific speakers? Do they communicate new case law through blogs or newsletters, so you can see they’re on top of things? Are they well respected in the state? Are they on committees?”

“The power of a firm is being able to not just settle a claim but successfully set new case law that benefits or is of use to the folks that come along later,” she said.

Data and analytics are an increasingly important tool in selecting workers’ comp law firms. But not everyone is convinced of their utility.

“In order for [metrics] to be useful you’ve got to make sure you’ve got apples to apples analytics,” said Levy.

“Otherwise it’s like anything — I can spin any number I want to make it say what I want to say.”

“Some say analytics don’t tell you the quality of the work,” said Fish.

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“They tell you the cost and the speed, but not the quality. And there’s no way to quantify that, so there’s no way to tell.”

Others are more upbeat about the power of analytics.

“We have a number of analytical tools that help us capture data to measure various aspects of a law firm’s performance,” said Bruno Para, assistant vice president and manager of legal strategic services for central territory at Liberty Mutual.

“Liberty Mutual has always been very analytical, and we are constantly improving our metrics, constantly improving our data, constantly looking at other ways to pull more information and insight out of our data to help us manage outside counsel performance.”

Liberty Mutual, and its Helmsman Management Services wholly-owned third party administrator, provides clients with analyses of the data, according to their preferences, through reports, discussions and a customer dashboard.

“A carrier or TPA should be helping a policyholder or customer with assessing the data, analyzing it, figuring out what is trending and how they can get the best results, but do it efficiently and cost effectively,” said Don Liskov, assistant vice president and senior corporate counsel at Liberty Mutual, and, along with Para, a member of the company’s legal strategic services group.

But data can only help so much.

“There are a number of performance factors beyond our data … that we include in a law firm’s profile,” said Para.

“What is the firm’s reputation in the legal community? Do they have a particular litigation philosophy? How do they manage motions? Do they try the right cases?”

Other factors include staffing ratios, technology, and their usage and understanding of data and metrics in assessing performance against quality and financial goals.

“You can glean some of that through data and metrics, but a lot of that is subjective. It is sitting down with the firm,” said Liskov, so that the client, the attorneys and the carrier, if there is one, all know each other’s litigation philosophies. “… Making sure all of these align with each other is very important.”

Working with national firms can also seem easier, said Levy, with standardized billing and fewer relationships to manage. But she cautions that you still have to do your diligence.

“A firm can be great in this state, in this town and then you move clear across country to another and it’s a completely different approach,” she said.

“Do they maintain and keep that same energy and direction whether you’re in Idaho or in Miami, Florida?”

Starting out with a good fit may be the most important factor to a successful long-term relationship, but such relationships must be maintained.

“Data and analytics are essential to tracking how firms are performing,” said Para. They allow Liberty Mutual to visualize performance trends against other firms and against themselves, period over period.

“We also sit down with firms to share our key performance indicators. We build transparent relationships so law firms understand how they can use the data we share to make changes within their operations that will positively impact their performance trends in the future.”

Some, like Levy, think competition can keep law firms from growing complacent.

“I’m a big believer in keeping a few firms on hand,” said Levy.

“I think competition is the best way to get the best out of a law firm.”

Liberty Mutual prefers a more collaborative approach.

“Through increased engagement and transparency we are enhancing our relationships to drive legal performance and cost efficiencies ,” said Para.

“We frequently share knowledge with all of our law firms, so that they understand where they are in relation to our performance expectations and our internal standards. This type of benchmarking also incentivizes them to consider how they compare to one another and drives healthy competition.”

“We have a number of analytical tools that help us capture data to measure various aspects of the law firm’s performance.” — Bruno Para, AVP, manager, legal strategic services for central territory, Liberty Mutual

One thing everyone agrees on, however, is that communication is essential.

“It starts with frequent, transparent communication in terms of whether or not the guidelines, the expectations, and the goals of the relationship are being met,” said Para.

And if a once-good fit seems to have become less so, it is important to understand why and communicate that. Are the problems operational or systemic? Do they stem from changes to the law firm, or the client’s business?

The important thing is to communicate such changes.

“Once you identify the why, then you can address what to do about it,” said Para.

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Disconnects can also arise from strategic or philosophical changes on the client side.

“On any given day, company X might be more hard-nosed, or easygoing. If word gets out that they settle everything, they might see an increase in claims. So they say they can’t settle, and they litigate every claim, then they get dinged for $1 million, so they back off that hard-nosed position.”

Inevitably, sometimes, a client may need to make a change, but Levy advises a measured approach. “When clients see a change going on or see or feel something that’s not right, a lot of times they’re very quick to abandon this relationship,” said Levy.

“…We do try to encourage that you take a step back to examine: Is it one attorney at issue, is it the philosophy of the firm that’s changed? … Don’t just run away. Take some time to really make sure that’s what you want to do. And if you’ve had good results and there’s a way back to those results that match and meet your expectations, then hold on to it.” &

Jon McGoran is a novelist and magazine editor based outside of Philadelphia. He can be reached at [email protected]

Cyber risk continues to be the amorphous and seemingly indefensible threat facing businesses of all types and sizes, and insurers are continually tailoring their policies to respond to the changing environment. Making the challenge more difficult is the fact that cyber no longer is constrained to breaches of network security that imperil private information.

Cyber threats now intermingle with other types of exposure, like employee theft and professional liability, and can cause a broader spectrum of loss including property and reputation damage.

“We’re seeing a change now where the malicious actors aren’t just hacking networks to steal information; they’re reaching out from the digital world to cause different types of damage,” said Elissa Doroff, vice president, underwriting and product manager, XL Catlin.

As cyber becomes the root case of various types of tangible damage, it raises questions around what policies will be triggered by an event involving both digital and physical damage, and raises the potential for both gaps and overlaps in coverage.

Here are the top five ways cyber risk is evolving to create gray areas in existing insurance coverages:

1. Infiltration of Industrial Systems Leads to Property Damage

Hackers’ ability to breach a corporate network through various channels is nothing new. But when the intent is to cause physical harm rather than steal data, they can find their way into the industrial controls that operate a facility and wreak havoc.

In 2014, cyber criminals sent a German steel mill up in flames by speeding up the machinery until it became too hot and eventually exploded. The following year, bad actors brought down the Ukrainian power grid through similar methods.

A property policy responds to the resulting physical damages from such an incident, regardless of the cause. But the physical damages are just one piece of the attack.

The targeted organization will also have to investigate how the hackers gained access to their systems and whether they stole or altered any data in the process. The costs of a forensic investigation, restoration of data, notification and any other third-party liability exposures would not be covered under a property policy.

“A cyber policy would respond to network issues like theft of PII or use of transient malware that causes damage to a third party,” Doroff said. “And it would include the first-party coverages to remediate the network breach itself.”

Without a cyber policy, any incident of physical property damage caused by a cyber event would only be partially covered.

2. IoT and Bitcoin Amplify Ransom Risk

“On average, the claims didn’t exceed $50,000. You paid the ransom if you needed to. More sophisticated organizations with good backups knew that they would be safe without paying, so they could just wait for the hacker to go away,” Doroff said.

But the problem is no longer that easy to solve. The explosion of devices connected via the Internet of Things has created more access points to corporate networks.

“When workers connect with their phones outside of a VPN, it may not be bifurcated from the corporate network that has a higher level of security,” she said. “It opens the door for new strains of malware.”

The rise of bitcoin also drives up the ransom amounts sought by hackers. More thieves are asking for their payment in cryptocurrency, which continues to rise in value. This is why having a cyber insurance policy with access to the right breach response vendors is critical.

Since bitcoin is not readily ascertainable on the open market, insureds need access to forensics vendors that maintain a bitcoin wallet. When a ransom is demanded in bitcoin, the vendor can quickly respond to facilitate the transaction and the insured back to business as soon as possible.

“Cyber extortion claims are not $50,000 anymore. With the increase in bitcoin’s ubiquity and value, the cost of a ransomware attacks today can double or triple that amount,” Doroff said.

Where coverage for cyber extortion was once considered a throw-on to a cyber policy, it’s now a critical must-have. Cyber liability insurance without coverage for extortion could leave targets with insurmountable losses after an attack.

3. Social Engineering Expands Definition of Theft

Hackers have become adept at mimicking professional emails to request fraudulent transfers of funds, posing as a client or vendor, or sometimes as a senior manager making a request of a subordinate. Often, the employee tricked into sending the cash doesn’t realize the mistake until it’s too late, and both the thief and the money are long gone.

“That type of theft has created a gap in the insurance market when it comes to treatment of financial fraud,” Doroff said.

A fidelity and crime policy typically would not cover a loss stemming from a social engineering scheme because the funds ultimately were willingly transferred away, even if the employee that did so was deceived. Crime policies may only extend coverage to outright theft of money or securities.

“There has been a push in the marketplace to offer coverage for social engineering fraud within cyber policies, but most of the coverage that exists now is offered on a sub-limited basis,” Doroff said.

As cyber thieves find new ways to bilk businesses, a cyber policy with coverage for social engineering fraud in combination with a crime and fidelity policy closes the coverage gap for emerging types of theft.

4. Data Breaches Threaten Company Reputations

Plenty of high-profile breaches demonstrate how a cyber attack can cause the public to lose faith in an organization they trusted with their personal information. Target, Equifax, Yahoo and Uber are just a few examples.

“Adverse publicity will cause a loss of brand trust that negatively impacts sales, but measuring that impact is the difficult part of designing coverage,” Doroff said. Quantifying exposure is the barrier to developing coverages that adequately address the reputation risk of cyber breaches — but a few methods are emerging.

“We’ll look at a company’s sales over a six-month period after an incident and compare that to the previous year, which provides a snapshot of how much revenue they’ve lost that’s likely attributable to the cyber event,” Doroff said.

But, she added, quantifying the loss is not an exact science. Along with a comparison of sales and revenue, a more thorough financial audit conducted by forensic accountants may be needed. Each carrier will have their own preferred method for measuring reputation exposure.

Because most cyber policies on the market today don’t address this exposure at all, it’s best to work directly with underwriters up front to determine whether there is coverage for financial losses from reputation damage, and how those losses will be accounted for.

5. Storage of Sensitive Data Increases Professional Liability Risk

While theft of PII has always posed a significant threat to financial institutions, hospitals, and other organizations that house large amounts of customers’ private data, some firms previously less concerned with cyber risk are finding that they may have targets on their backs as well.

“This comes up often with professional services firms like attorneys’ offices or financial consultants,” Doroff said. “They have a duty to keep clients’ sensitive information secure. If there’s some third-party incident whereby their clients’ information gets out, they could face costly lawsuits.”

While a professional liability policy likely covers those legal expenses, it won’t cover the first-party losses related to the breach itself, including the investigation, notification and remediation expenses. For more and more firms, “It’s not sufficient to rely on your E&O coverage,” Doroff said.

Staying Ahead of the Coverage Curve

As cyber risks and responding coverages continue to evolve, companies are best served by working with a carrier at the forefront of cyber underwriting. XL Catlin’s cyber and technology liability policy addresses the varying ways in which malicious hackers can infiltrate systems or otherwise cause harm.

“We built this policy based on all the endorsement requests we received from brokers, which meant changing some definitions, removing certain exclusions or broadening some insuring agreements,” Doroff said. “The result is a policy with very broad terms and conditions that is a market leader in terms of what brokers and insureds are looking for.”

“Our services include everything from training articles and videos to tabletop exercises, testing of employees’ response to phishing emails, and an 800-number manned by our claims team,” Doroff said. “Our broad vendor panel also offers several options for law, public relations and forensic firms, to help insureds recover quickly from a cyber incident — whatever shape it takes.”

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with XL Catlin. The editorial staff of Risk & Insurance had no role in its preparation.

XL Catlin. From insurance to reinsurance, a changing world needs new answers. We’re here to find them. With an incredible blend of people, products, services and technology, we have the power to find innovative, creative solutions to your risks — from the most familiar to the most complex.

A growing number of Americans earn their living in the gig economy without employer-provided benefits and protections such as workers’ compensation.

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With the proliferation of on-demand services powered by digital platforms, questions surrounding who does and does not actually work in the gig economy continue to vex stakeholders. Courts and legislators are being asked to decide what constitutes an employee and what constitutes an independent contractor, or gig worker.

The issues are how the worker is paid and who controls the work process, said Bobby Bollinger, a North Carolina attorney specializing in workers’ compensation law with a client roster in the trucking industry.

The common law test, he said, the same one the IRS uses, considers “whose tools and whose materials are used. Whether the employer is telling the worker how to do the job on a minute-to-minute basis. Whether the worker is paid by the hour or by the job. Whether he’s free to work for someone else.”

Legal challenges have occurred, starting with lawsuits against transportation network companies (TNCs) like Uber and Lyft. Several court cases in recent years have come down on the side of allowing such companies to continue classifying drivers as independent contractors.

Those decisions are significant for TNCs, because the gig model relies on the lower labor cost of independent contractors. Classification as an employee adds at least 30 percent to labor costs.

The issues lie with how a worker is paid and who controls the work process. — Bobby Bollinger, a North Carolina attorney

However, a March 2018 California Supreme Court ruling in a case involving delivery drivers for Dynamex went the other way. The Dynamex decision places heavy emphasis on whether the worker is performing a core function of the business.

Under the Dynamex court’s standard, an electrician called to fix a wiring problem at an Uber office would be considered a general contractor. But a driver providing rides to customers would be part of the company’s central mission and therefore an employee.

Despite the California ruling, a Philadelphia court a month later declined to follow suit, ruling that Uber’s limousine drivers are independent contractors, not employees. So a definitive answer remains elusive.

The motive for companies seeking the contractor definition is clear: They don’t have to pay for benefits, said Meneghello. “But from a legal perspective, it’s not so easy to turn the workforce into contractors.”

“My concern is for individuals who believe they’re covered under workers’ compensation, have an injury, try to file a claim and find they’re not covered in the eyes of the state.” — Matt Zender, vice president, workers’ compensation product manager, AmTrust

It’s about to get easier, however. In 2016, Handy — which is being sued in five states for misclassification of workers — drafted a N.Y. bill to establish a program where gig-economy companies would pay 2.5 percent of workers’ income into individual health savings accounts, yet would classify them as independent contractors.

Unions and worker advocacy groups argue the program would rob workers of rights and protections. So Handy moved on to eight other states where it would be more likely to win.

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So far, the Handy bills have passed one house of the legislature in Georgia and Colorado; passed both houses in Iowa and Tennessee; and been signed into law in Kentucky, Utah and Indiana. A similar bill was also introduced in Alabama.

The bills’ language says all workers who find jobs through a website or mobile app are independent contractors, as long as the company running the digital platform does not control schedules, prohibit them from working elsewhere and meets other criteria. Two bills exclude transportation network companies such as Uber.

These laws could have far-reaching consequences. Traditional service companies will struggle to compete with start-ups paying minimal labor costs.

Opponents warn that the Handy bills are so broad that a service company need only launch an app for customers to contract services, and they’d be free to re-classify their employees as independent contractors — leaving workers without social security, health insurance or the protections of unemployment insurance or workers’ comp.

That could destabilize social safety nets as well as shrink available workers’ comp premiums.

A New Classification

Independent contractors need to buy their own insurance, including workers’ compensation. But many don’t, said Hart Brown, executive vice president, COO, Firestorm. They may not realize that in the case of an accident, their personal car and health insurance won’t engage, Brown said.

Workers’ compensation for gig workers can be hard to find. Some state-sponsored funds provide self-employed contractors’ coverage. Policies can be expensive though in some high-risk occupations, such as roofing, said Bollinger.

The gig system, where a worker does several different jobs for several different companies, breaks down without portable benefits, said Brown. Portable benefits would follow workers from one workplace engagement to another.

What a portable benefits program would look like is unclear, he said, but some combination of employers, independent contractors and intermediaries (such as a digital platform business or staffing agency) would contribute to the program based on a percentage of each transaction.

There is movement toward portable benefits legislation. The Aspen Institute proposed portable benefits where companies contribute to workers’ benefits based on how much an employee works for them. Uber and SEI together proposed a portable benefits bill to the Washington State Legislature.

Meneghello is skeptical of portable benefits as a long-term solution. “They’re a good first step,” he said, “but they paper over the problem. We need a new category of workers.”

A portable benefits model would open opportunities for the growing Insurtech market. Brad Smith, CEO, Intuit, estimates the gig economy to be about 34 percent of the workforce in 2018, growing to 43 percent by 2020.

The insurance industry reinvented itself from a risk transfer mechanism to a risk management mechanism, Brown said, and now it’s reinventing itself again as risk educator to a new hybrid market. &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected] Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

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